How Labour stole your retirement

SO NOW it's official: most of us must wave farewell to the dream of a golden age of retirement. Yesterday New Labour threw its weight behind a European directive requiring an end to mandatory retirement dates in Britain.

This, we were assured, would help put an end to the iniquity of ageism in the job market, enabling a talented and energetic grey workforce to prosper beyond the existing retirement threshold.

In reality, it is simply a cynical sleight of hand designed to take millions of working Britons off the pensions payroll. In so doing, the Government hopes it can paper over the chasm it has created in the financial markets, which have left British workers facing a bleak retirement.

It has been clear since the Government produced the first of its two pension discussion documents last December - in a desperate attempt to resolve the retirement crisis it helped create - that it has wanted us to work longer and more flexibly.

It is, of course, scandalous that many good working people and middle managers are thrown on to the scrap heap in their late 40s and 50s, and then find it difficult to get a job again. No one disputes that such ageism needs to be dealt with. But the Government should be honest. Ending age discrimination in the workforce does not, in itself, require people to work to the age of 70, as has been proposed.

Indeed, all of us are familiar with individuals who draw such personal satisfaction and vitality from working that they have willingly extended their careers into their 80s.

Tesco boasts an 82-year-old employee at its Crawley store. My own father-in-law, a chartered surveyor, still cherishes his work at the ripe age of 89. To those for whom work is part of keeping intellectually active, a mandatory retirement age already is a nonsense.

But the truth is that the problem is not with ageism, as Trade Secretary Patricia Hewitt claims, but with the crisis in our pension funds.

Well funded plans

BEFORE Labour took office, Britain had a structure of private pension provision which was the envy of the world. It was possible to keep the State pension lean and mean, comfortable in the knowledge that company pension plans and their public service counterparts would pick up the bulk of retirement costs.

In most cases, company pension plans were well funded and equipped to provide comfortable retirement prospects. There was even the hope of early retirement, well below the mandatory retirement ages, so that people who had been loyal to a corporation over a lifetime had the chance to switch careers and lifestyles in middle age.

Not any longer. The pensions system has been battered from all sides. New data just released by the Pension Fund Partnership shows that one-third of final-salary pension schemes - the gold standard of the industry - have been closed.

The biggest single factor behind this timebomb was Gordon Brown's decision, in his first Budget as Chancellor, to remove the tax privileges which dividend payments made to pension funds attracted. Initially, the cost of this was put at £5bn a year. But calculations done recently by senior City figures put the true price of this measure at an astonishing £100bn, accounting for the larger part of the £160bn hole that currently exists in British pensions.

To be fair, other factors are also at play. When the first final-salary pension plans were created, people started work at the age of 15 or 16 and worked for around 50 years. They could then expect to live for a further five to ten years. In other words, the two-thirds of their life in work easily paid for the one-third out of work.

Now, with people starting work later, retiring in their 60s and then living potentially to their mid-80s, only half their lives are spent in work.

Companies' excuses

ON PRESENT demographic trends, the period people spend in work could drop to 40%. In other words, there is a much shorter time to save for a much longer retirement.

This situation has been made even worse by some companies which have used the excuse of ending their final- salary schemes to slash their contributions to employee pensions.

The final factor behind the dire state of company pensions is the fall in the stock market. For only the second time this century, share prices fell three years in a row between 1999 and 2002. As a result, the expected returns have slumped.

One senior investor, who manages millions of pensions and life policies, tells me that his firm has cut the prospective growth in their pension and life funds from the 11% achieved in the Nineties to 6% for the foreseeable future.

In an age of low inflation, returns on investments have slumped. This also means that the 'annuities' - the annual incomes bought from insurance companies with the pension pot accumulated over a lifetime - get you less and less return for your money.

Add to this bleak picture the closure of pension funds in collapsed firms such as that at the ASW steel group and the ongoing scandal at Equitable Life, and you have a picture of despair for many future pensioners.

Yet not everyone finds themselves in this boat. The corporate 'fat cats' have built themselves fantastic nest-eggs. Geoff Mulcahy, the recently retired boss of the Kingfisher retail group, stepped down with a personal fund of £15m - enough to pay him £790,000 a year for the rest of his life.

Arguably, men such as Mulcahy and Chris Gent of Vodafone deserve this for the tens of thousands of jobs they helped to create, and the wealth pumped into the national economy.

Politicians protected

BUT IT would be hard to make the same case for our senior politicians. Yet the very ministers and senior civil servants who have joined the crusade against ageism are among the people most protected from markets forces, with guaranteed pensions paid out of public funds.

Lord Irvine, the last of the old-style Lord Chancellors, marched off into the sunset at the age of 63 clutching his £2.6m pension fund. Like other ministers, he was able to build up a full pensions entitlement - two-thirds of a final ministerial salary - in five years.

Ordinary MPs have also feather-bedded themselves with generous pension arrangements, including negotiating the best terms for those MPs whose investments were caught up in the Equitable Life fiasco.

Public service workers are similarly protected. According to a Government pensions adviser, even an average public sector worker, earning just £22,000 a year, will have a pension fund pot that will cost the taxpayer £300,000.

To buy a civil service or MP's pension of £60,000 a year at the age of 60 similarly costs the public purse £1.5m.

Horrifying prospect

IT IS very easy for ministers and MPs to wax lyrical about the benefits and flexibility of working until 70 when they have provided so well for themselves by dipping their snouts into the public trough.

But the millions of ordinary wealth creators in the economy, whose taxes pay for the retirement of our senior politicians, will be horrified by the prospect of compulsory working until 70.

By combining 'ageism' with pensions, the Government has attempted to mask its own mishandling of the crisis. For this, if nothing else, it deserves to be punished.